Forward vs. Future Prices
Can someone please provide me a clearer understanding of the schwesher explanation for the following question. I don’t understand the negative aspect of mark-to-market of a future.
When interest rate changes are negatively correlated with the price changes of the asset underlying a futures/forward contract:
A. Forward prices are higher
B. Futures prices are higher
C. Futures prices may be higher or lower depending on the risk-free rate and price volatility.
Explanation: A negative correlation between asset price changes and interest rate changes makes the mark-to-market feature unattractive to a futures buyer. This leads to a lower futures price, compared to the forward price on an otherwise identical contract.
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